St. Louis could be the next hot market for big restaurant brands

Posted on January 15, 2018

The Walnut Grill, Warby Parker, Bonobos, The Capital Grille, Shake Shack, Rock & Brews, AKIRA and Bob's Furniture opened their first locations in St. Louis in 2017.

And those are just the beginning of what's to come for the region.

More and more national brands are looking to St. Louis for opportunity.For the first time, the metro area cracked Buxton Co.'s list of its clients' top 25 most evaluated markets in 2017. St. Louis, at No. 16, outranked its Midwest peers and trendy markets like Nashville and Austin, Texas.

"When we look at these results, it can be a gauge or parameter that helps us understand where clients' activity in terms of opening locations may be in the future," said Chris Kondraske, vice president of analytics for Buxton, a national customer analytics firm focused on the retail and restaurant industries. "There may be something going on in those markets that's interesting like growth or reasonably priced real estate."

Secondary markets, Buxton said in a 2018 report, do not suffer from overbuilding. Buxton used its geospatial analytics platform to evaluate markets that its clients considered for expansion over a 12-month period from October 2016 to October 2017. While primary markets like Los Angeles and New York continue to attract plenty of interest, Kondraske said the list sheds light as to what may be the next emerging secondary market. In past years, Nashville and Austin have been destinations for expansion into secondary markets. Now brands are looking for new markets.

"In the restaurant sector, we've had national groups make their first plunge in St. Louis in the past 12-18 months," said Grant Mechlin, managing director of Sansone Group’s Retail Services.

Rental rates have been on a steady climb for the past 24 months given currently occupancy levels and the low availability of space in the market, he said.

Gershman Commercial Real Estate reported the average rental rate across the metro area grew to $12.54 a square foot in the fourth quarter of 2017, up from $12.28 a square foot in the third quarter. The Chesterfield region's rate was $18.33 a square foot, followed by mid-St. Louis County's $19.67 a square foot and $15.82 a square foot in west St. Louis County.

Brands seem to like how relatively stable the region's economics have been, and the growing craft beer scene, too, has left an impression, Mechlin said.

"Even though it's more local growth, at least for my restaurant clients, that amount of consumer segment helps drive" decisions, Mechlin said.

Fast Retailing Co. Ltd., parent company to retailer Uniqlo, Hermès International SCA and LHMV, which owns over a dozen luxury brands like Sephora, Christian Dior and Givenchy, were on the National Retail Federation's list of the fastest growing companies in 2017. All have stores in the U.S., though only a few brands of LHMV have locations in the St. Louis area.

The rapid growth of the multifamily market over the past 12-18 months, especially in Clayton and the West End, is helping to feed that growth, Mechlin said.

It took years for the uber-popular Shake Shack Inc. (NYSE: SHAK) to open in founder Danny Meyer's hometown of St. Louis. The burger brand needed to see how its concept would survive outside of its headquarters of New York and other big markets, such as Chicago and Los Angeles. Finally, 13 years after opening in New York and three years after debuting in Chicago, Shake Shack found a home in a $32 million development in the Central West End that's adjacent to the trendy neighborhood's other new developments like Whole Foods and 1764 Public House.